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Health Affairs This Week places listeners at the center of health policy’s proverbial water cooler. Join editors from Health Affairs, the leading journal of health policy research, and special guests as they discuss this week’s most pressing health policy news. All in 15 minutes or less.
Hello and welcome to Health Affairs This Week. I'm your host, Jeff Beyers. We're recording on 04/16/2025. As a heads up, we have two upcoming insider events I want you all to be aware of. Next week on April 23, we have a conversation with Brady Post on-site neutral payments.
Jeff Byers:And then on May 29, we have another insider event on the FDA's first a hundred days under the second Trump administration, moderated by Rachel Sachs. The panel will include Richard Hughes the fourth and Artie Rye. Today, I'm joined by Bob Herman from Stat News to talk about the m and a space in health care. Bob is a health care business reporter at Stat News, and his work previously appeared in Modern Healthcare and Axios, one of the OG business reporters out there. So, Bob, welcome to the program.
Bob Herman:Thanks for having me, Jeff. Glad to be here.
Jeff Byers:I had you on because I'll I'll admit, I still got that dog in me, but I'm not tracking this stuff as much as I used to. So I thought it'd be great if you could tell us about the general state of deals in the health care space. Is M and A cooked?
Bob Herman:Yeah. I mean, it it has changed a lot from, like, the early days of the Affordable Care Act. You know, when when president Obama signed the ACA into law more than fifteen years ago now, it really unlocked, like, every kind of player to just start trying to buy or sell whatever they wanted to. And you just saw a flurry of deals everywhere. And this is especially the case with hospitals because the ACA encouraged what many would call coordination among the different providers, and it just led to just this huge boom in hospital mergers.
Bob Herman:But it's it's ebbed and flowed a lot. You know, when COVID happened, a lot of companies were just suddenly had a ton of cash and just started buying everything. So, like, that first year of COVID, like 2021, there was just so many deals everywhere. And since then, it's actually slowed down a little bit. You know, president Biden got elected in, you know, 2020, took office, and there was a a very clear antitrust effort in the in Biden administration.
Bob Herman:You look at FTC when Lena Khan was leading up, Jonathan Cantor at DOJ. There was a there was a very clear presence there that they wanted to clamp down on what they thought were anticompetitive mergers in health care specifically. And so there was just a there was a lot of pushback on some of those deals, especially in the hospital space, you know, some payers. Yeah. It's it's ebbed and flowed.
Bob Herman:There's still a lot of money flowing around. Private equity is everywhere, of course. But, yeah, it's it's it's ebbed and flowed.
Jeff Byers:You touched on a point that you've done a lot of reporting on how much money hospitals made during the pandemic or, like, how much reserves they had. Can you dive into that a little bit? Because I always thought that was interesting and also kinda beats against the hospital narratives of that we're working on thin margins. And, you know, not all hospitals are the same, but can you touch on that a little bit as well?
Bob Herman:During COVID, many hospitals were in a tough position. Right? Because when the pandemic first started, nobody pretty much everybody stopped going to the doctor, to the hospital because it was just it was not safe to do so. So there was a cash crunch there. But congress was like, wait.
Bob Herman:This is a huge problem. Like, let's make sure hospitals have money flowing on even though people aren't going to get care. And so congress authorized billions and billions of dollars to go into hospitals. And so hospitals did really, really well those first couple years, just surpluses that were gigantic. And there were some years afterward where things became a little bit tougher, costs got higher, and they were relying a lot on, you know, travel staff, travel nurses, and that was more expensive than having permanent employees.
Bob Herman:But this idea that hospitals are withering on the vine, that's just it's it's kind of fictional. It's never really been the case. It's not to say that some hospitals haven't struggled. That's absolutely true. Especially rural hospitals, small hospitals that, you know, treat more poor elderly patients.
Bob Herman:But overall hospitals have especially the big mega systems where, you know, there's this thing con there's, you know, this consolidation over the past decade. They've been doing fine. They're sitting on large cash reserves. Some of their operating margins are thin. Some are operating a loss, but it doesn't mean that they are dying or at risk of going bankrupt.
Jeff Byers:Kinda going back to the m and a space, you talked about LenaCon and the FTC and the DOJ under the Biden administration. From what I recall, they tried to scrutinize some of the bigger deals. Is there a sector or type of deal that's happening that isn't getting a lot of attention?
Bob Herman:It's a good question. Yeah. I mean, the Biden administration did focus on a lot of bigger deals, especially among the big tech companies. But they went after a lot of what I thought were pretty clear, you know, anticompetitive health care deals too. You think about there was this big hospital deal in North not big, but it was local.
Bob Herman:Novant Health tried to buy this hospital system around the Charlotte area, and the Biden administration went after it. It was, like, just like, the low hanging fruit. Right? They really didn't go after some of, like, the the cross market mergers, whereas, like, these big hospital systems that were not necessarily in the the same areas, and they were just merging because they didn't overlap much. So the Biden administration didn't go too much after those.
Bob Herman:Now there are, I think, other areas that are flying a bit under the radar, and it's this idea of vertical integration. Right? Where it's instead of hospitals buying hospitals or insurers buying insurers, it's hospitals buying doctors or insurers buying doctors. Something that's just not totally their line of business, but they work with them a lot. Maybe they're suppliers to each other.
Bob Herman:And those deals are still going on pretty frequently. You know, you think about UnitedHealth Group, the largest health care company in America. This has been their strategy for, like, the past decade. Right? Where they they realized that they have kind of and this is across the health insurance writ large where we've kinda reached this critical mass where it's very, very hard for insurers to buy competing insurers because there's just they're already really concentrated.
Bob Herman:There those deals blew up back in 2016, I think, when Aetna and Humana tried to merge and Anthem and Signature had merged, and that was just wildly ant anticompetitive, and the DOJ shut those deals down. So trying to do that again is gonna be very difficult. So insurers have pivoted. They've they've run it to get more into care delivery, and that has been United's MO for a while. Now think about you know, we reported earlier this year, United continues its buying spree of outpatient surgery centers, which is also a big focal point for hospital systems as well.
Bob Herman:You know, it's also continued to buy more into physician groups and anything that's like tangential to maybe a business that like pharmacies, that's another one. So anything that complements their business, anything where they could buy from their self, right, where it's if you're a UnitedHealthcare insurance member, it makes a ton of financial sense for the company to send you to a UnitedHealth Group doctor or UnitedHealth Group pharmacy. So vertical integration has gotten way more attention, but it still flies under the radar because it's just it's happening so much. And some of the deals are so small that maybe they don't, like, catch the big national headlines, but they make a a big deal for the companies that are buying them.
Jeff Byers:Yeah. I can't remember the exact year. I think it was 2018, but you can correct me if I'm wrong, when the CVS Health Aetna deal went through, which was a big vertical integration. And Absolutely. Your colleague, Zachary Tracer, and myself back in 2017 both wrote about Optum, who was owned under UnitedHealthcare and just the the wave of transformation they have changed themselves from a to a service company or, like, the way that they their portfolios changed even back then from 2012 to 2017 was quite stark, and I'm sure that's potentially still continue.
Bob Herman:Yeah. And and in the same vein, you think about all the PBM mergers too. Right? Like, because Cigna bought Express Scripts. That was the major one.
Bob Herman:And then even before that, you know, United had bought Catamaran, which was folded into OptumRx. And then CBS was already a big PBM as the result of PBM mergers from, like, you know, the late, you know, February to twenty tens. So PBMs is another space that's all related to that. As you'll see, insurers are no longer just insurers. It's it's it's way more complicated than that.
Jeff Byers:Yeah. So there was a moment this year where the FTC, I believe, please correct me if I'm wrong, kinda reaffirmed some Biden era proposals on the antitrust level. And so my question to you is based on that, unless that has changed or unless there's been any statement, which very well could have changed, you know, this morning or to the time we published on Friday, looking at that vertical integration, is there any implications for that, of that reaffirmation of those proposals versus what you're seeing?
Bob Herman:Yeah. So the the Department of Justice and the Federal Trade Commission have both made it clear that they want revamped merger guidelines. They've wanted to take a closer look. And, honestly, like, when Lina Khan was at FTC in particular, she kinda got support from both sides of the aisle on this. Republicans and Democrats are both like, it makes a lot of sense that more scrutiny should be placed on some of these deals, especially the vertical deals.
Bob Herman:I think vertical deals have still not really been challenged all that much. You think about, like, currently, UnitedHealth is trying to buy Amedisys, this large home health and hospice chain. But DOJ is suing not on grounds that it's because of the of its vertical nature. It's because United already owns a large home health and hospice company called LHC Group, which it bought a few years ago. And, therefore, having that and Amedisys would create too much market power for United.
Bob Herman:So that's not quite a vertical merger challenge, but there is this idea of wanting to challenge more mergers along that line. I spoke with Jonathan Kanter a few months ago, the outgoing DOJ antitrust head under Biden, and he was very concerned about this idea of health care companies becoming platforms. That means it was basically a a you know, vertical integration was becoming a major major problem in his eyes, where by becoming vertically integrated, there is the idea that maybe things do become more efficient. Maybe care does get coordinated a little bit better. But you also there's there's so many financial incentives to prefer your own company.
Bob Herman:And that is just it could be very anticompetitive. It could lock out competitors. But, also, are you directing people toward the best options for their care? So, yeah, I mean, I think there's still lot to be you know, we don't really know how, you know, this new Trump administration antitrust apparatus is gonna go into effect. We have Andrew Ferguson at FTC leading it now and Gail Slater at DOJ.
Bob Herman:And they, I mean, they have still been pretty pretty vigilant in making sure that there's merger enforcement. It's not like there's been this, like, totally, like, hands off, let corporate America run wild idea. But, you know, I don't it's still early days and I don't know what that means. But overall, I I still think deal volume is still down a little bit because, you know, during the Biden administration, everyone was just like, we're holding off because there's a chance that we could get challenged here. And I don't know that it's just fully resumed.
Bob Herman:I know a lot of, like, the consulting firms and, you know, law firms that want deals to happen because it's a it's a little self serving for them. But, you know, they want these deals to happen because a lot of companies, especially private equity companies, are sitting on companies that they wanna unload now. So I think there's a lot of chances for for deals to come back up, and whether there's strict federal enforcement of some of these is still an open question.
Jeff Byers:I am interested. So you and I are talking about vertical consolidation. We're talk we've talked about mergers and acquisitions and horizontal consolidation for a while. Do you get the sense that maybe not the general public, but the generally informed public or, like, people interested in health care, is this something that's on their radar, or is this a really wonky topic for the most part?
Bob Herman:I think, you know, there's that meme, why not both? Right?
Jeff Byers:I think it it could
Bob Herman:be both. Yeah. Right. Yes. Vertical integration is is wonky because it's just it's you know, when you think about mergers, I think most people just think about, like, competitor a buying competitor b, and that's the deal.
Bob Herman:When this is you look at, like, down the chain, who could they be buying instead of their competitor. But I it's very clear that vertical consolidation has caught the attention of antitrust enforcers. We saw that with Jonathan Cantor and Lena Khan. And you still see it now, I think, with with Trump administration antitrust officials. And it and it's also caught the attention of lawmakers too.
Bob Herman:And I wanna give another good good example of this, one that definitely has flown under the radar, but it's picking up now. And that is you have these large wholesalers, these medical supply and drug wholesalers. You think of Cardinal Health, McKesson, and Syncora, which used to be called AmerisourceBergen. They, like, they just run most of the sourcing of drugs and medical products as distributors, and they are getting into care delivery. All of the the big three have all bought or bought major majority stakes in certain physician groups, oncology groups, eye doctor groups, certain specialties where they rely on these physician administered drugs, maybe their injection is, you know, IV administered.
Bob Herman:But as a wholesaler, you can make a whole lot of money by suddenly owning that physician group, supplying them with those very profitable medicines, and retaining more of that profit then as the parent company. So that's another area that is, again, this idea of vertical integration in a different way, completely different way. But that has attracted the attention of lawmakers too. Elizabeth Warren has sent letters on this concerned that it could be anticompetitive. Vertical integration has been the way for hospitals, for insurers, for other groups to diversify because they might have felt tapped out elsewhere.
Bob Herman:And now I think people are starting to realize that maybe this has some anticompetitive effects of its own.
Jeff Byers:Well, Bob Herman, thanks again for joining us today on Health Fairs This Week. Is there anything that you wanna tell our listeners that you got going on at STAT News or any specific coverage that you wanna point them to?
Bob Herman:Yeah. I mean I mean, I'm biased, but STAT has really just been doing a lot of great my colleagues are just they're they're really the best at what they do. And, you know, with the Trump administration coming in and they're kind of being chaos across the federal government in terms of people being laid off, certain agencies just completely being eliminated, It's the way that I've been trying to stay informed as well. So, yeah, anything on the federal government is is just, like, firmly in our radar right now. There's just so much change going on there.
Bob Herman:Yeah. And, of course, you know, that cost money. That's why, you know, we have a stat plus, which is our subscription. And I know we all kinda have subscription fatigue to some point, but I do feel like it's it's a pretty good value because we do put out what I hope is very diligent, trustworthy health care news. And for anyone who wants, you know, free stuff, you know, we have free newsletters as well.
Bob Herman:I have one HealthCare Inc. You can sign up at you know, find the sign up page at statnews.com, and that's a great way to just stay informed, you know, through a lighter touch too.
Jeff Byers:Yeah. Are you making those memes at the end of it?
Bob Herman:I am. Yeah. Do you find
Jeff Byers:the reporting harder or the memes making harder?
Bob Herman:Oh, man. The memes honestly are harder. It was one of those things when I started the newsletter. I'm like, oh, this is gonna be so much fun, you know, having a meme at the end of every issue, and it's become increasingly harder. I don't know.
Bob Herman:I I completely did not think about, you know, doing this over time, but it's still fun. It's it's still fun. Just a challenge.
Jeff Byers:I I look at it, and I am impressed because you're trying just from a joke format perspective, trying to get so much specific information in there. Thanks for being honest. That is a challenge. Oh,
Bob Herman:it's it's not easy. Yeah. Some people have it, and, you know, kudos to them. Hopefully, I'm trying. You know, it's just you know, there's so much news that is like, it's it's, you know, it's a lot.
Bob Herman:So any way that you can, like, bring a sense of humor to it, hopefully, will help maybe people understand, but also bring, you know, a little bit of a laugh.
Jeff Byers:Fantastic. We'll put the link to stat and to the newsletters and the show notes so listeners can check that out if they haven't already checked it out. Bob Herman, thanks again for joining us today on Health Fairs This Week. And if you, the listener, enjoyed this episode, please send it to the dealmaker in your life. Thanks, and we'll see you next week.